Tuesday, 12 March 2013

U.S. Economy Not Growing While Stocks Soar

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The Bureau of Labor Statistics guessed that 236,000 jobs were added
in February and everybody applauded. Yay, or should we say, “boo.” What
most everyone missed is that even the BLS admits in a footnote to its
February jobs press release that historically its initial number can be
revised as much as 90 percent. A 90 percent revision to me means that
the February 230,000 job number is meaningless.

On the other hand, TrimTabs has been estimating about 100,000 new
February jobs. Our estimate historically has varied less than 10percent
from the final, revised BLS jobs number. The real numbers for this
February will not be reported until March 2014. In other words, like
most of what the U.S. government does, the monthly jobs number is a
joke.

Why are the BLS initial job numbers so bad? The BLS sends a survey to
all of 145,000 employers the week that includes the 12th day of each
month. That is 145,000 employers out of millions. We spoke with a former
corporate comptroller whose job it was to fill it out. She said the BLS
monthly survey request was her lowest priority.

Bottom line, the BLS gets just over half the surveys back before the
end of each month, and relies on this incomplete survey to come up with
its initial monthly jobs report . Believe it or not, it takes another
two months before all the responses arrive. That is why the February
number will get revised both in March and in April. But then it takes
until March of next year before the BLS uses real time data from the
states based on Quarterly Unemployment Insurance filings to do an annual
revision.

In other words, the survey could be off by as much as 90 percent and
we will not know the real number for another year. That doesn’t stop the
media and traders from relying on these incredibly inaccurate initial
jobs numbers as if they were gospel.

Meanwhile, I estimate that over the past few weeks wages and salaries
have been growing by just over a meager 2 percent year over year, and
therefore no real growth after inflation. My estimate is based upon the
daily filing of withheld income and employment taxes that flow into the
U.S. Treasury. I then adjust those numbers for higher employment taxes
and income taxes this year.

We had been saying that higher Q4 2012 incomes had to make for lower
Q1 2013 incomes. That is why after adjusting for higher tax rates,
incomes barely grew nominally year over year early in February and was
actually negative after inflation. But as we are now are entering mid
March, and all bonus income has been paid, wage and salary growth before
inflation seems to have stabilized at just over 2 percent year over
year. That is about the same rate that wages and salaries were growing
in 2012 before the front running $100 billion tax-related pop.

Whatever estimate for inflation you want to use, nominal growth of
just over 2 percent translates into an economy that is not growing in
real terms. Anybody surprised by that? You should be if you watch the
stock market and listen to those who are fully invested “talking their
book” that higher stock prices mean that the U.S. economy is recovering.

By the way, “talking their book” is an old Wall Street term for those touting whatever they own, regardless of the truth.

As I have been saying all year, the reality is that stocks have
neared all time highs for just two reasons. The first and most important
is that the Federal Reserve has been consistently debasing the currency
by creating $4 billion of new money via computer keystrokes each and
every day and some of that money has been increasing the demand for
equities.

The second reason why stocks are so high is that companies have
accumulated a huge cash hoard earning nothing sitting on balance sheets.
That’s why companies are using some of that cash to shrink the number
of shares outstanding.

So we have more money chasing fewer shares. The end result is that
stock prices go up. So what if the U.S. economy is not growing?
Remember, Las Vegas magicians do not use magic. They use misdirection to
deceive the audience.

Misdirection is the name of the game at the Fed these days. In the
past a rising stock market had some relationship to an improving
economy. But not this time. This time it is all a charade.